Justia Insurance Law Opinion SummariesArticles Posted in US Court of Appeals for the Seventh Circuit
Astellas US Holding, Inc. v. Federal Insurance Co.
The 2005 Medicare amendment, launching prescription drug coverage, raised concerns that patient assistance plans could violate the Anti-Kickback Statute, 42 U.S.C. 1320a-7b, and the False Claims Act, 31 U.S.C. 3729, by effectively rewarding doctors and patients for choosing particular drugs. Astellas subsequently launched Xtandi, used to treat metastatic prostate cancer. Priced at $7,800 per month, Xtandi prescriptions were covered by Medicare up to about $6,000 per month. Astellas made contributions to two patient assistance plans. An Astellas marketing executive encouraged both plans to create special funds to provide co-pay assistance for only androgen receptor inhibitors like Xtandi and a few other medications. Astellas donated to the new funds but stopped after contributing about $27 million. Astellas continued contributing to broader prostate cancer funds.The Department of Justice began investigating; the Astellas marketing executive acknowledged that he had “hoped” and “expected” that the contributions would produce financial benefits for Astellas but that Astellas had made no efforts to calculate “a return on investment.” Astellas settled with the government for $100 million--$50 million for “restitution” to the government. Astellas sought indemnification from liability insurers, including Federal, which denied coverage.The Seventh Circuit affirmed summary judgment for Astellas. Under Illinois law, a party may not obtain liability insurance for genuine restitution it owes the victim of its intentional wrongdoing, but a party may obtain insurance for compensatory damages. In cases of ambiguity, Illinois favors settlements and freedom of contract. Federal wrote its insurance policy to try to extend coverage to the limit of what Illinois law would allow. Federal did not carry its burden of showing that the portion of the settlement payment for which Astellas seeks coverage is uninsurable restitution. View "Astellas US Holding, Inc. v. Federal Insurance Co." on Justia Law
Thirteen Investment Co., Inc. v. Foremost Insurance Co. Grand Rapids Michigan
Thirteen’s building suffered fire damages covered by Foremost’s policy. Thirteen retained Paramount as its public adjuster and general contractor for repairs. Paramount was “to be [Thirteen’s] agent and representative to assist in the preparation, presentation, negotiation, adjustment, and settlement” of the fire loss. Thirteen also “direct[ed] any insurance companies to include Paramount … on all payments on” the fire loss claim. Paramount negotiated the fire loss. Foremost delivered settlement checks to Paramount. The checks named Thirteen, its mortgagee, and Paramount as co-payees. Paramount endorsed the names of all co-payees, cashed the checks, and kept the proceeds. Paramount performed some repair work on the building before Thirteen sought a declaratory judgment that the insurer had breached its policy by not paying the claim.The Seventh Circuit affirmed summary judgment for Foremost. Paramount received and cashed the checks, discharging the insurer’s performance obligation under the policy. The court rejected Thirteen’s arguments that Foremost waived payment as an affirmative defense by failing to plead it in its answer; that, under controlling Illinois law, Foremost’s policy obligation was not discharged when it delivered the checks to Paramount, which cashed the checks; and that Foremost agreed to make claim payments to Thirteen in installments after Foremost had inspected repair work performed. View "Thirteen Investment Co., Inc. v. Foremost Insurance Co. Grand Rapids Michigan" on Justia Law
Meier v. Pacific Life Insurance Co.
Ron and Lorrie Meier investigated the purchase of a life insurance policy for Ron through Monarch Solutions. While they considered a policy offered by Lincoln, a nurse assessed Ron’s health and prepared a “Medical Supplement” and “Examiner’s Report.” Ron ultimately applied for a policy with Pacific. In June 2018, Pacific received a copy of the medical forms previously submitted to Lincoln. On July 26, Ron completed his Pacific application, referencing the Lincoln “medical examination.” Ron agreed to several terms, including a provision requiring him to update Pacific “in writing of any changes” to his health. Pacific accepted Ron’s application on July 30 and began the underwriting process. On August 6, Ron learned he had stage IV lung cancer and immediately began treatment. Ron and Lorrie orally disclosed Ron’s cancer diagnosis to their Monarch representative but did not inform Pacific. On September 6, Pacific delivered Ron's policy. A year later Ron died from lung cancer.After learning that Ron had failed to disclose his terminal cancer before the policy’s issuance date, Pacific rejected Lorrie’s claim. Pursuant to the Illinois Insurance Code, Pacific rescinded the policy and returned the premiums. The district court and Seventh Circuit ruled in favor of Pacific. Ron’s failure to inform Pacific of the diagnosis constituted a material misrepresentation allowing for the policy's rescission. View "Meier v. Pacific Life Insurance Co." on Justia Law
Stant USA Corp. v. Factory Mutual Insurance Co.
Stant is a manufacturer of products for automobile suppliers and automobile manufacturers, including vapor management systems, fuel delivery systems, and thermal management systems. The spread of COVID-19 in early 2020 and the ensuing government orders curtailing the operation of non-essential businesses resulted in the suspension or reduction in operations by Stant’s customers. Stant alleged that it suffered over $5.3 million in derivative financial losses.Stant sought to recover under an “all-risk” insurance policy sold by FM. Under the Contingent Time Element coverage in that policy, Stant argued it was entitled to coverage for lost income as a result of “physical loss or damage” at its customers’ properties. Stant claimed that the COVID-19 virus caused such “physical loss or damage” to its customers’ properties and that its resulting business interruption losses were covered under the policy. Stant sought a declaratory judgment that it was entitled to recover under a commercial insurance policy issued by FM. The Seventh Circuit affirmed the dismissal of the suit. The temporary loss of use or restrictions on use do not constitute “physical” damage or loss. View "Stant USA Corp. v. Factory Mutual Insurance Co." on Justia Law
Frankenmuth Mutual Insurance Co. v. Fun F/X II, Inc.
Fun's warehouse had a functional sprinkler system with a working water supply. In 2016, an inspector from Legacy found no problems. In 2017, the inspector found the system had no water pressure. South Bend Water Works could not explain the problem and had no record of shutting off the water. Two months later, Fun contacted the fire inspector, who did not know how to restore the water. Fun's owner again called the Water Works and was told there was no record of disconnection. He asked the operator to restore the water and “assumed that she was going to ... figure out what was going on.” Fun never heard from any Water Works personnel and did not check whether the water was restored. In 2018, another Legacy employee performed the inspection. Fun was not notified of any problems. A fire destroyed the warehouse in 2019. Fun claimed losses exceeding $7 million. The city apparently had capped the pipe supplying the sprinkler system in 2017 when the neighboring building was demolished. Fun's Frankenmuth insurance policy contained an exclusion for situations in which the insured knew of any suspension or impairment in any protective safeguard, including sprinkler systems, and failed to notify Frankenmuth.Frankenmuth obtained a declaratory judgment that it did not owe insurance coverage. The Seventh Circuit affirmed. Cao had knowledge in 2017 that the system had no water yet never reported that impairment nor determined that the problem was solved. View "Frankenmuth Mutual Insurance Co. v. Fun F/X II, Inc." on Justia Law
Creation Supply, Inc. v. Hahn
Selective denied coverage of Creation's insurance claim. Creation sued for breach of contract and won. Creation then pursued costs and fees for Selective’s vexatious and unreasonable delay under the Illinois Insurance Code, 215 ILCS 5/155. The Seventh Circuit held that the remedy was unavailable. Creation then sued Selective’s in-house lawyer, the lawyer’s supervisor, and its outside counsel, alleging they tortiously interfered with the contract between Selective and Creation.The Seventh Circuit affirmed the dismissal of the suit. The suits were an attempt at double recovery—one from the principal and one from its agents. The corporate form limits, not doubles, liability. In Illinois, tortious interference requires some sort of interloper and precludes applying the economic loss doctrine to claims for tortious interference. Illinois provides a corporation’s agents with a conditional privilege, rooted in the business judgment rule, from tortious interference suits. When an agent acts in the corporation’s interests, she is protected from liability for interfering in her principal’s contractual affairs. When an agent interferes with a contract, she is presumed to do so for the company’s benefit. Under Illinois law, overcoming the privilege was Creation’s burden to plead, and its failure to do so with more than mere conclusory allegations dooms its suit. View "Creation Supply, Inc. v. Hahn" on Justia Law
Joy Global Inc. v. Columbia Casualty Co.
Joy Global and Komatsu agreed to merge. Joy sent its investors disclosures required under the Securities Exchange Act, 15 U.S.C. 78n. Subsequent suits contended that Joy violated the Act by not disclosing some internal projections of Joy’s future growth that could have been used to negotiate a higher price, rendering the proxy statements fraudulent, and that Joy’s directors violated their state law duties by not maximizing the price for the shareholders. The suits settled for $21 million.The district court held that the $21 million loss is not covered by insurance. The policies do not require indemnification for “any amount of any judgment or settlement of any Inadequate Consideration Claim other than Defense Costs.” An “inadequate consideration claim” is that part of any Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate.The Seventh Circuit affirmed. The suits assert the wrongful act of failing to disclose documents that could have been used to seek a higher price and are within the definition of “inadequate consideration claim.” The claims do not identify any false or deficient disclosures about anything other than the price. The only objection to this merger was that Joy should have held out for more money, and that revealing this would have induced the investors to vote “no.” View "Joy Global Inc. v. Columbia Casualty Co." on Justia Law
Zall v. Standard Insurance Co.
Department of Labor regulations required the administrator of an employee benefit plan to give a claimant, “upon request,” copies of “all documents, records, and other information” that the administrator considered in making an adverse benefit determination. In 2018, the regulations were amended to eliminate “upon request” and require an administrator to provide such information “sufficiently in advance” of an adverse determination “to give the claimant a reasonable opportunity to respond.”Zall, a dentist for 20 years, sought long-term disability benefits in 2013 after pain and numbness forced him to stop working. His insurer, Standard denied the claim. In 2014, after considering additional medical information and consulting an orthopedic surgeon, Standard approved Zall’s claim, including retroactive payments. Less than a year later, Standard began reviewing his case to see if his condition was subject to a 24-month benefit limit applicable to any disability “caused or contributed to by … carpal tunnel or repetitive motion syndrome” or “diseases or disorders of the cervical, thoracic, or lumbosacral back and its surrounding soft tissue.” Standard ultimately terminated Zall’s benefits.Zall filed suit under the Employee Retirement Income Security Act, 29 U.S.C. 1001, arguing that the decision was arbitrary and capricious and that Standard violated ERISA’s procedural requirements by failing to afford him “a full and fair review.” The district court granted Standard summary judgment. The Seventh Circuit reversed and remanded. The plain language shows that the amended regulation applies; Standard failed to comply. View "Zall v. Standard Insurance Co." on Justia Law
Indemnity Insurance Co. of North America v. Westfield Insurance Co.
Sandstone operated large-scale swine farms in Scott County. Its owner also owned Red Oak. In 2007-2008, Westfield insured Sandstone. After 2008, Indemnity insured Sandstone. Star provided insurance to Red Oak. Sandstone was named as an additional insured under Star’s policy in 2009. In 2010, neighbors brought private nuisance claims against Sandstone in Illinois state court (“Marsh action”). Sandstone notified the three insurance companies. Each agreed to defend Sandstone, subject to a reservation of rights. Indemnity, citing a coverage exclusion for claims involving ”pollutants,” sought a declaratory judgment that it had no duty to defend. Sandstone withdrew its tender of defense to Indemnity, which dismissed its suit without prejudice. Star and Westfield split the defense of the Marsh action. An Illinois appellate court held that odor claims involving a hog facility are not “traditional environmental pollution” and are not excluded under insurance policy pollution exclusions, which foreclosed Indemnity’s earlier argument. Sandstone notified Indemnity, which filed another federal declaratory judgment action. In the Marsh action, a jury returned a verdict in favor of Sandstone. Westfield and then sought reimbursement of their defense costs.Reversing the district court, the Seventh Circuit ruled in favor of Indemnity. Its insurance is "excess" and Star had a duty to defend, so Indemnity’s “other insurance” provision relieves it of any duty to defend Sandstone. Indemnity is not estopped from asserting that defense because it promptly responded to Sandstone’s tender of defense. View "Indemnity Insurance Co. of North America v. Westfield Insurance Co." on Justia Law
Prime Insurance Co. v. Wright
Humphrey was a Riteway driver. His trips began in Illinois, often ending in another state. In 2013 Humphrey drove a truck to Indiana. After he delivered the freight, Riteway directed him to another site in Fort Wayne. While driving to the pickup site, Humphrey’s truck collided with Wright's car. After cooperating with the police, Humphrey picked up his load and delivered it to Illinois. Wright sued Riteway in Indiana state court and obtained a default judgment. Riteway's Prime Insurance policy contained an endorsement that provides payments to an injured party even when the insurer need not defend or indemnify its client. A federal court determined that Riteway had forfeited the benefit of Prime’s policy but reserved questions about whether Wright could recover under the endorsement. The Indiana judiciary declined to allow Prime to attack the default judgment.Prime sought a declaratory judgment that the endorsement did not apply. The endorsement applies to any judgment “resulting from negligence ... subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980.” Those statutes have been repealed but the parties stipulated that 49 U.S.C. 31139(b)(1) applies and provides that all motor freight transportation from a place in one state to a place in another is covered. The district court ordered Prime to pay. The Seventh Circuit affirmed. Humphrey was engaged in interstate freight transportation under the statutory definition regardless of intent, whether a truck was carrying freight, or the “totality” of the circumstances. View "Prime Insurance Co. v. Wright" on Justia Law